How to write a brand licensing agreement
Brand licensing agreements are legal contracts that are drawn up between two parties. According to License Global, they enable one party (the licensor) to allow the other (the licensee) usage rights to their trademark, logo, name, brand, patent, likeness, or character. Although these types of agreements are usually associated with big corporations that are embarking on a brand collaboration, small businesses that are looking to reach newer markets at a fraction of the cost can also tap into the power of brand licensing agreements to do so.
Here’s all you need to know about brand licensing contracts.
The ins and outs of brand licensing agreements
A brand licensing agreement stipulates the terms and conditions under which one party can use another’s intellectual property. These types of agreements are usually created with the following boundaries in mind:
- The time period that the licensee is allowed to use the intellectual property.
- The territories or areas that the licensee is allowed to use the intellectual property.
- Scaling terms that include how often the intellectual property can be used before new royalty fees are paid.
- Whether the agreement is exclusive or non-exclusive. An exclusive license puts a limit on how many licenses can be given to third parties and a non-exclusive license allows the licensor to work with competitors and pursue other licensing deals.
Types of licenses
There are four main types of brand licensing agreements:
- Copyright - This gives the licensee the right to sell any copyrighted works, including any works based on the original (this is known as derivative works).
- Patent - This type of agreement allows a business to use or sell products that are patented.
- Trademark - Licensees can use trademarks in agreed upon ways or on certain products.
- Trade secret - A business licenses their processes to another
The advantages of brand licensing
Brand licensing agreements offers many benefits for big and small businesses alike. These include:
A licensing agreement contains clear rules on how the trademark, patent or brand should be used. It allows both the licensor and licensee to have an understanding of what’s expected of them in their licensing partnership. Important points like usage rights, royalty payments, copyright, and the contract’s expiration date are included.
Your intellectual property will be protected
Licensing agreements can teach you what you need to know about protecting your brand’s IP. This is key because you never know when your brand will become successful and reach a wider audience than anticipated.
It offers access to new markets
It’s much easier for your brand to reach new markets with a licensing deal because the licensee will take care of requirements such as tariffs in overseas markets and other costs associated with attracting new customers.
You’ll get an additional passive revenue stream
Licensing your IP is a good way to generate passive income. As long as the businesses you’ve licensed your IP to make money, then your business will too. The great thing is you don’t stand to lose your ownership rights and you could receive royalties for years into the future, which is helpful for periods of low business.
You can still retain a degree of control over your brand
You aren’t selling your brand or IP to another company, so you still have control over the decisions you make on a daily basis, provided that they don’t go against your licensing agreement, of course.
It helps build strong customer relationships
Not only will you be growing your customer base, but you’ll also be strengthening the one you currently have. This is because your customers will see the growth of your brand and this wider visibility creates social proof that emphasizes your credibility.
It reduces the risks for both parties involved. This is because for licensees, there are less risks regarding manufacturing, product development, and market testing. For licensors, they have reduced risk regarding selling the product or service and expanding into new markets.
Read our blog on common mistakes to avoid when entering a brand partnership to learn more about risk reduction in collaborations.
Key points to include in a brand licensing agreement
When writing up a brand licensing agreement, make sure the following points are included. Bear in mind that these are recommendations and do not substitute the need for a qualified lawyer or licensing agent.
Establish ownership of assets
Make sure the agreement clearly states who owns what. You should also do your due diligence and make sure that the IP is correctly registered and no other party is currently using your assets. This prevents any potential lawsuits and conflicts about IP from third parties. An example of this is Sanrio licensing Hello Kitty, their IP, to Mattel who created a range of toys. Here are more examples of Sanrio's Hello Kitty collaborations.
Mention the subject in detail
Describe the product, service or IP that is being licensed in detail. It’s best to also include information about copyright, trademarks, and patents to make it clear.
Make sure the titles and definitions are clear
Your brand licensing agreement should state who the licensee and licensor is. Definitions of other terms like IP, exclusivity and others should also be clearly defined. This ensures that there’s no misunderstanding and allows either party to pursue legal recourse if necessary.
Details about the license
Be sure to include details like terms and conditions, exclusivity, territories, and time limits. These terms should be itemized and include how the licensee can exploit the product.
Exclusivity and territory
Is the agreement exclusive or non-exclusive? Make sure you also stipulate in which territories the license applies.
Start and end dates of the brand licensing agreement
The licensing agreement should have start and end dates so all parties know when it comes into effect and when it expires.
Include sales monitoring and quality assurance
Requesting the ability to monitor sales figures is important because it ensures that you keep track of all sales. A quality assurance clause allows you to keep track of the quality of your product, which is key because your brand name will be associated with the quality that is distributed by the licensee.
Add payment details
Information regarding the amount of compensation that will be paid, when it will be paid and how long it will be paid for should be recorded in the agreement.
Factor in government regulations
Different territories have different regulations, especially depending on the type of product you’re selling. Keep this in mind when drafting your licensing agreement.
Mention any restrictions
Listing what the licensee isn’t permitted to do with your IP is important. This helps you control your brand image and ensures that you’re fairly compensated.
Do your due diligence and vet the licensee
Before you get too excited and sign on the dotted line, make sure you vet the other business thoroughly. This means asking for financial statements, checking management’s qualifications, visiting factories or office spaces, and more.
Also known as an NDA, this sub-agreement can help you further protect your IP as a licensor. It prevents the licensee from sharing any confidential information about your brand and IP with any third parties.
Factor in unforeseen circumstances
Nobody wants to think about failing, but it’s important to picture every possible unfavorable scenario when drawing up a brand licensing agreement. Think about what would happen if either party went bankrupt or was unable to fulfil their obligations due to circumstances outside of their control. What if the contract was breached, what would the penalties be? Get all of this in writing.
Whether you sell a consumer product or a corporate service, licensing is a viable way to partner with other brands because it doesn’t require a large financial investment from either party entering into the agreement. By doing your due diligence, hiring a qualified intellectual property lawyer and keeping the points above in mind, your business can begin leveraging licensing as a means to reach new markets.
You also consider working with product licensing companies that can do a lot of the work for you to put together a licensing program so that you can just focus on building your brand.
As brand owners, every business can be a licensing business.